The Philippines' bloody crackdown on drugs is now harming the country's economy

Residents
involved with illegal drugs wait for fellow surrenderees before
taking a pledge that they will not use or sell "Shabu" (meth)
again after surrendering to police and government officials in
Makati, metro Manila, August 18, 2016REUTERS/Erik De Castro

National economies, and the investors involved in them, generally
do well when public safety and rule of law can be assured.

But amid the Philippines' bloody crackdown on the drug trade and
criminality, led by President Rodrigo Duterte, it appears
investors and businesspeople inside and outside the country have
lost faith that those conditions can be assured.

As a consequence, the Philippines' economic footing, recently
quite strong, seems less assured. "Official
data from the Philippine stock exchange shows net foreign
transactions on the benchmark index have fallen over the past
month," CNBC reported on Tuesday.

"Many investors have been turned off by threatening remarks made
by Duterte against the US and China, casting doubt on the future
of Manila’s foreign policies and his handling of the economy,"
the CNBC report noted.

Philippine
President Rodrigo Duterte speaks during a news conference in
Davao.Thomson
Reuters

According to The Economist, since Duterte took office, investors
have demanded higher risk premiums to hold
Philippine assets. "A lot of people are hesitant to put
their money into the Philippines at this point,"Guenter Taus, who heads the European Chamber of Commerce in
the Philippines, told the magazine.

Duterte has lashed out at international critics, including
the UN as well as the US and President Barack Obama (though
Philippine officials have said that deals between the
country and the US will remain in place).

His most recent outburst was directed at the EU, which urged his
government to curb extrajudicial killings and violence. "F---
you," Duterte replied on Tuesday, adding a raised middle
finger for good measure.

In addition to his words, Duterte's deeds have caused worry
about his engagement with the international community.

Earlier in September, Duterte skipped several meetings at a
summit in Laos, including one on ASEAN and the UN, which,
accordingPrashanth
Parameswaran, an associate editor at The Diplomat, has raised
concerns about his commitment to multilateralism, which is
important not only to the economic relationships in the region,
but also to multinational cooperation on security issues in the
South China Sea.

Filipino
activists at an anti-China rally outside the Chinese consulate at
the financial district of Makati, south of Manila, Philippines,
June 4, 2015.AP Photo/Aaron
Favila

While Duterte's stated focus on macroeconomic stability,
infrastructure development, and workers' rights was welcomed at the outset of his term, it
seems the Philippine president's harsh rhetoric, which has helped
drive his popularity sky-high, has more
recently stoked worry among businesses and investors.

Duterte has repeatedly made accusations against public
figures without substantiation. This month, he said he had a
list of at least 1,000 police, local
community leaders, politicians, and other officials suspected of
links to the drug trade. In August he accused 159 public officials of colluding
with the drug trade without presenting evidence.

Duterte's brash pronouncements since taking office may be
part of an effort to shore up his base as he finds his footing on
the national political stage.

"His tactic of calling out allegedly corrupt officials and
business leaders is a way to help him build public support and
keep potential rivals at bay," geopolitical analysis firm
Stratfor wrote in late August.

As mayor of Davao City, home to 1.5 million people in the
southern Philippines, Duterte's brash attitude and harsh
anticrime measures won him popularity, and he held high office
there for nearly 30 years.

And as president, Stratfor argued, "Over the long term, he
thinks voters and foreign investors alike will reward his focus
on law and order, even if it brings with it a temporary spike in
bloodshed and is enforced with extralegal means."

Policemen
inspect the body of a man, with tape wrapped around his head and
feet, who police said was a victim of drug-related vigilante
execution in Manila, September 21, 2016. The cardboard found near
his body reads: "Kage Lao, drug lord from Mindanao. You are
next."REUTERS/Ezra
Acayan

But Duterte's administration's public denunciations
have affected locals and foreigners alike.

Philippine officials have admitted that organized-crime
groups have seized on Duterte's call to arms for their own
violent purposes, and impunity for police violence has some in
the country worried about reprisal killings. A longtime Manila
resident told The Economist that some expatriates were
thinking of leaving.

In August, just a few days after he was publicly accused of
being a drug trafficker by the national-police chief, a Philippine businessman and his wife were gunned
down. This month, the daughter of a British baron was killed
when she was out on bail after being charged with drug
possession, with her body left on a Manila street, adorned with a
sign accusing her of being a "drug pusher for celebrities,"
according to AFP.

Recently, one online-gambling executive saw his company's
shares fall 50% after Duterte publicly criticized
him for having outsize political influence — the executive
resigned the next day.

"Everyone is scared,” a corporate leader told The Economist. "None of the big business
groups will stand up to him. They’re all afraid their businesses
will be taken away."